Counterparty Credit Risk

Quantify and understand the default risk of a counterparty

Counterparty credit risk is the potential for a loss arising from the default event of a counterparty in financial contracts (e.g., derivative contracts and securities borrowing and lending agreements). The credit risk of a counterparty in a depends on various factors, for instance, value of underlying assets, type of netting agreements, and value of collateral.

Understanding counterparty credit risk help financial institutions set the counterparty credit limits and policy, which help mitigate losses when the credit events occur.